Land Use Policy and Employment Growth- Evidence from China

This paper examines the causal effect of land use policy on employment growth in Chinese cities. We find that a stricter Floor Area Ratio Regulation (FARR) leads to a reduction in employment growth in Chinese cities- a one standard deviation reduction in FARR leads to a concurrent reduction of employment growth by 1.1-1.6 percentage points. More populated cities and labour-intensive manufacturing industries are found to be more severely affected by stricter FARR. Moreover, the effect of a stricter FARR is found to be less pronounced on state-owned firms compared to foreign-owned and privately-owned firms. Our main conclusions are robust to a variety of sensitivity tests, different instruments and alternative estimators. They suggest that imposing a stricter legal FARR incurs considerable employment costs for Chinese cities.